1. (C) SUMMARY. The July 3 general strike threatened by
the Free Trade Union (FTU) and the Cambodian Independent
Teachers Association (CITA) presents an already vulnerable
Hun Sen with the conundrum of choosing between support for
workers or the business elite. Hun Sen realizes that only
Cambodia's unions have the power to put tens of thousands of
workers on the street on short notice. FTU leader Chea Mony
clearly sees the threatened strike as a test of his political
strength which will help determine his role in the 2007 local
elections and 2008 national elections. Chea Mony may be more
willing to take risks because he has been overshadowed by the
high-profile assassination of his brother, union leader Chea
Vichea, and the arrest of his friend and mentor, CITA union
leader Rong Chhun. A general strike has the potential to
turn violent and precipitate a crackdown that could threaten
the political openness of the last six months. And if it
lasts for more than a day or two, it may be the final push
that convinces already jittery garment buyers to take their
business elsewhere, shutting the doors on Cambodia's most
important industry. This could potentially lead to a
backlash against the ruling CPP, if the CPP permits it to
happen. END SUMMARY.

Hun Sen Feeling Vulnerable
--------------------------

2. (C) The threatened July 3 general strike comes at a time
when Hun Sen is already feeling vulnerable. The World Bank
corruption scandal plays out daily in the nation's
newspapers, and the circle of people implicated is ever
expanding. Hun Sen jokes about the scandal both to ridicule
the World Bank, whom he accuses of not sharing sufficient
evidence, and to make light of the charges against his
administration. It also reflects push-back from ministers
who are being implicated against their will. At the same
time, on-going land disputes both in Phnom Penh and in the
provinces are pitting the well-connected against poor
farmers, and are creating increased discontent among Hun
Sen's strongest supporters--poor rural Cambodians.

3. (C) The current labor impasse presents Hun Sen with an
impossible choice: workers versus the business elite. In
contrast to the many human rights, health, environmental, and
educational NGOs which are largely reliant on external donors
for funding and direction, unions represent the largest and
least foreign-influenced part of civil society in the
country. Unions alone have the ability to put tens of
thousands of protesters in the street on short notice, and
Hun Sen knows this. On the other hand, Hun Sen is loath to
alienate garment factory owners and managers, who form the
backbone of the country's formal economy and are often
politically well-connected. Hun Sen's studied inattention to
the threatened general strike is the result of his calculated
desire to avoid offending either group. Hun Sen advisor Om
Yentieng told us today, perhaps disingenuously, that while
the Prime Minister hopes for a peaceful resolution to the
strike, he is not unduly concerned.

4. (C) Labor unrest in Cambodia often results in violence,
and this general strike would prove no exception. This is
even more likely if the strike progresses past the initial
sit-in phase to the street demonstrations FTU leader Chea
Mony has said could take place July 6 or 7.

5. (C) For the first time in Cambodia's modern history,
relative political stability has enabled politicians to start
turning their attention early to local elections in 2007 and
national elections in 2008. Just as Hun Sen has pushed
FUNCINPEC out of the way to make room for a cozier
relationship with the SRP, other political players are
already working to position themselves. For pro-opposition
union leaders Rong Chhun and Chea Mony, this means reaching
for power in order to be a political force in the coming
elections. Chea Mony has told us that the threatened general
strike is a test of his ability to command workers and will

PHNOM PENH 00001199 002 OF 002

play into his planning for the 2007 local elections.

6. (C) Chea Mony may also be looking to increase his
personal political stature and may feel overshadowed by other
union leaders. Chea Mony's brother, FTU President Chea
Vichea, was assassinated in January 2004, leaving former
chemistry teacher Chea Mony to unexpectedly inherit Vichea's
mantle. Chea Vichea's assassination focused international
attention on Cambodia and led to his being heralded as a
worker's hero; his funeral attracted 5,000 workers. Last
fall's crackdown on union and civil society leaders who
criticized the border treaty with Vietnam led to the arrest
of Chea Mony's friend and mentor Rong Chhun. Rong Chhun's
case became an international cause celebre, and international
pressure on the government increased further when an
additional three leaders were arrested following a Human
Rights Day celebration in December. The release of Rong
Chhun and the other detainees on January 17 gave them instant
credibility and public recognition. In contrast, Chea Mony
was out of the country when his arrest warrant was issued,
and spent several months in relative obscurity traveling in
Ireland and France while trying to raise enough money to
support his living expenses there. When his arrest warrant
was rescinded, he returned to the country with little fanfare.

7. (C) In addition to the potential political implications
of a general strike, such labor unrest would hit the garment
industry--which accounts for nearly half of the country's GDP
and more than 80% of its exports--at an extremely sensitive
time. The garment industry is continuing to consolidate its
manufacturing process following the end of the Multifiber
Agreement's quota system in January 2005. Cambodian garment
factories are already at a disadvantage due to longer
transportation times, high cost of electricity and other
overhead, and lack of vertical integration. Moreover,
Cambodia doesn't have the tariff-free garment entry to the US
that many developing countries in Africa and the Caribbean
enjoy thanks to the African Growth and Opportunity Act (AGOA)
and the Caribbean Basin Initiative (CBI). Cambodia's
strongest selling point is its reputation for excellent
workers' rights and the existing relationships the factories
have established with buyers.

8. (C) However, strikes at garment factories have been up
substantially over the past six months. Strikes in May, for
example, led to the loss of 87,000 working days--a figure
four times what is typically seen dQng the May to September
peak production season. Garment buyers are already worried
that the increase in labor unrest could lead to production
delays and could tarnish their reputation for good working
conditions and labor relations. According to the Garment
Manufacturer's Association of Cambodia (GMAC), Levi Strauss
has already scaled back its planned orders in Cambodia from
13 million to 8 million pairs of jeans for 2006. Nike and
Puma have reportedly shelved earlier decisions to expand
purchases from Cambodia. GMAC reports that many buyers are
delaying confirming orders until after July 3 to see what
happens with the general strike threat.

9. (C) The danger for Cambodia is two-fold. First, a
general strike--particularly one that lasts for more than a
few days--could be the final push that chases garment buyers
out of Cambodia and in to the waiting arms of China, Vietnam,
Bangladesh, and other countries. If this were to happen and
the CPP were perceived as responsible for letting it occur,
there could be a strong voter backlash against the CPP in the
upcoming elections. Second, if the strike were to take a
violent turn, it would likely be met with a crackdown that
could turn back the democratic gains made so far this year.